Crypto, Bitcoin (BTC) Valuation Models Are Wrong

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Crypto, Bitcoin Market Is “Just A Bit Backward”

Michael Casey, the chairman of CoinDesk’s advisory board, a well-recognized author, and the co-founder of Network Effects Media, sat down with Cheddar, an up and coming business media outlet, on Thursday. The crypto-friendly outlet called on the industry insider to discuss the state of the crypto industry today, and a number of unique topics were brought to the table.

A Cheddar anchor, staving away from asking the outlet’s normal round of questions, asked Casey if the way that crypto investors value digital assets, such as Bitcoin (BTC) or Ethereum (ETH), are putting cryptocurrencies into a crisis. Responding passionately, the crypto proponent, who regularly contributes to CoinDesk, noted that this market’s valuation models are “all just a bit backward.”

Elaborating on what he meant, Casey noted that cryptocurrencies and related technologies are seen as a way to disintermediate ecosystems and to curb centralized entities. But now, the way that we value these blockchain-based assets is quite reminiscent of how traditional markets are run — a big no-no for diehard decentralists.

He added that we’re benchmarking crypto’s performance of fiat, or more specifically, we’re continually denoting BTC’s value in dollar signs, rather than the iconic ₿(itcoin). In other words, he said that much of the crypto market is focused on a successful exit into fiat, rather than maintaining skin in the game, so to speak. Casey added that this causes incentives to get misaligned, as investors look for profit, instead of ousting the often corrupt powers that be.

Case in point, the CEO of Bitpay recently told CNBC that much of the Bitcoin price is based on speculation, rather than legitimate use in the real world, especially in the day-to-day.

Bitcoin Fundamentals Boom — Network Value

Although Casey didn’t touch on how exactly to value cryptocurrencies, a growing theme in this ecosystem has been the use of Network Value to assess this nascent industry. Most notably, the concepts of network value have been utilized by analysts and researchers to determine what the “true value” of a cryptocoin, like BTC, is.

Just recently, Tom Lee, the head of research at Fundstrat, told his clients in a note that the fair value for BTC is $13,800 to $14,800, specifically due to the active wallet addresses, the amount of BTC transferred, and the asset’s unique characteristics of being a deflationary currency that is sovereign, censorship-resistant, borderless, and immutable. This forecast, interestingly, lines up with his overly optimistic end of year prediction, as reported by Ethereum World News previously.

While Lee was quickly lambasted for his call, his optimistic outlook on Bitcoin doesn’t come unwarranted. Anthony Pompliano, better known as “Pomp” to the crypto industry, recently spoke on the fact that the network that backs BTC is on the up-and-up, even while prices remain depressed.

Pomp, a former Snapchat and Facebook employee, exclaimed that at its core, Bitcoin is the world’s most secure transaction settlement layer, so value in BTC will always exist. In another piece, the Morgan Creek Digital partner noted that the growing transaction count, falling transactions fees, year-on-year hashrate growth, and the unprecedented creation of active nodes is another reason to be bullish on Bitcoin.

In October, even Joseph Lubin, the founder of ConsenSys and co-founder of Ethereum, told CNBC’s “First On” segment that while crypto is in the midst of a “bust,” fundamentals are “booming.” The serial entrepreneur, who roomed with Mike Novogratz at Princeton, even noted this budding ecosystem is the strongest it has ever been, indicating that the decline of speculative interest hasn’t irked true believers of this innovation.